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Colombia Firm Energy Market

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Abstract

A firm energy market for Colombia is presented. Firm energy—the ability to provide energy in a dry period—is the product needed for reliability in Colombia’s hydro-dominated electricity market. The firm energy market coordinates investment in new resources to assure that sufficient firm energy is available in dry periods. Load procures in an annual auction enough firm energy to cover its needs. The firm energy product includes both a financial call option and the physical capability to supply firm energy. The call option protects load from high spot prices and improves the performance of the spot market during scarcity. The market provides strong performance incentives through the spot energy price. Market power is addressed directly: existing resources cannot impact the firm energy price. Since load is hedged from high spot prices, the market can rely on high prices to balance supply and demand during dry periods, rather than rationing.

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File URL: http://www.cramton.umd.edu/papers2005-2009/cramton-stoft-colombia-firm-energy-market.pdf
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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 07cfem.

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Length: 27 pages
Date of creation: 2007
Date of revision: 2007
Publication status: Published in Proceedings of the Hawaii International Conference on System Sciences, January 2007
Handle: RePEc:pcc:pccumd:07cfem

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Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
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Web page: http://www.cramton.umd.edu

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Keywords: Auctions;

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References

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  1. Lawrence M. Ausubel & Peter Cramton & Paul Milgrom, 2004. "The Clock-Proxy Auction: A Practical Combinatorial Auction Design," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 04mit5, University of Maryland, Department of Economics - Peter Cramton, revised 2004.
  2. Peter Cramton & Steven Stoft, 2006. "The Convergence of Market Designs for Adequate Generating Capacity," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 06mdfra, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
  3. Peter Cramton & Steven Stoft & Jeffrey West, 2006. "Simulation of the Colombian Firm Energy Market," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 06scfem, University of Maryland, Department of Economics - Peter Cramton, revised 2006.
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Citations

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Cited by:
  1. Ausubel, Lawrence M. & Cramton, Peter, 2010. "Using forward markets to improve electricity market design," Utilities Policy, Elsevier, Elsevier, vol. 18(4), pages 195-200, December.
  2. Batlle, C. & Rodilla, P., 2010. "A critical assessment of the different approaches aimed to secure electricity generation supply," Energy Policy, Elsevier, Elsevier, vol. 38(11), pages 7169-7179, November.
  3. Peter Cramton & Steven Stoft, 2008. "Forward Reliability Markets: Less Risk, Less Market Power, More Efficiency," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 08frm, University of Maryland, Department of Economics - Peter Cramton, revised 2008.
  4. Luiz T. A. Maurer & Luiz A. Barroso, 2011. "Electricity Auctions : An Overview of Efficient Practices," World Bank Publications, The World Bank, number 2346, August.
  5. Rego, Erik Eduardo, 2013. "Reserve price: Lessons learned from Brazilian electricity procurement auctions," Energy Policy, Elsevier, Elsevier, vol. 60(C), pages 217-223.
  6. Batlle, Carlos & Pérez-Arriaga, Ignacio J., 2008. "Design criteria for implementing a capacity mechanism in deregulated electricity markets," Utilities Policy, Elsevier, Elsevier, vol. 16(3), pages 184-193, September.
  7. Peter Cramton, 2009. "Innovation and Market Design," NBER Chapters, National Bureau of Economic Research, Inc, in: Innovation Policy and the Economy, Volume 9, pages 113-137 National Bureau of Economic Research, Inc.
  8. Espinosa, Miguel & Forero, German & Villaneda, Felipe, 2011. "The practice of the auction theory: The Colombian case," MPRA Paper 31150, University Library of Munich, Germany.
  9. Peter Cramton, 2007. "Colombia’s Forward Energy Market," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 07fem, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
  10. Finon, Dominique & Meunier, Guy & Pignon, Virginie, 2008. "The social efficiency of long-term capacity reserve mechanisms," Utilities Policy, Elsevier, Elsevier, vol. 16(3), pages 202-214, September.

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